In mid-November, we learned that Fidelity marked down the value of its Snapchat investment by 25%, which instantly reignited the tech bubble conversation. We may be in a bubble, but this event is not an indicator. What this mark down does reveal is a shift in investment strategy for large investment funds.

In the past few years, many high growth startups have delayed going public in favor of private capital to allow them to grow without the scrutiny of public reporting. As a result, Fidelity, who invested in both Google’s (up 1,400%+) and Facebook’s (up 180%+) IPO, has begun to invest in later stage private rounds to achieve comparable returns from tech startups. The 25% premium that Fidelity paid was the cost for access to Snapchat’s latest round of funding and potential Facebook like returns.

Had Fidelity not participated in this financing, their next opportunity to invest may not be until Snapchat’s eventual IPO, which could be 2 times the current price. If Fidelity believes that Snapchat is worth $150.00 per share, investing now — even if at a premium — is worth the upside versus waiting for an IPO.

Importantly, Fidelity takes a long term view on investing; they expect investments to generate an above market return over an extended period of time. They are able to withstand short term volatility because they believe in the fundamentals of the business and related industry (disappearing videos turned ad story model for millennials!). Their recent markdown of Snapchat is a result of their required quarterly mark to market valuation on all of their securities. It is not necessarily a reflection of their view of Snapchat’s long term value.

Extending this thinking to Facebook, Facebook endured early stock volatility — effectively a mark down — and now is generating above market returns.

Facebook’s public mark down.

Further, had Facebook delayed its IPO in favor of private capital, many investors like Fidelity would have missed out on the recent stock appreciation. Snapchat may never become Facebook, but Fidelity believes this company will last for more than a snap.

Note: Fidelity likely has preferred liquidation protection provisions in place that require its capital to be paid back first in the event of any downside scenarios.

I received this email today from Handy, an on-demand booking service for home cleaning:

We have entered into the new deal economy. Deeply discounted service offerings that are now delivered on demand instead of to your inbox.

But daily deals — in their original form — failed.

It started five years ago with Groupon. Subsequently thousands of clones emerged. Groupon for golf. Groupon for colleges (we tried to launch one). Google tried to [unsuccessfully] buy Groupon so instead proceeded to launch Google Offers. Facebook responded with an Offers platform of its own. Amazon invested in LivingSocial and doubled down with a native deals platform. Even the New York Times launched a deal site.

And then it stopped working. Excitement for 50% off was replaced by deal fatigue. Deals became a commodity. The only way to compete with the increasing supply was with deeper discounts. Discounts that were unprofitable and unsustainable.

Fast forward to today, we see a similar trend in the on-demand economy. The drivers are the same: Uber is killing it and the barriers-to-entry for new startups are low. Companies can tap into contract workers’ networks and leverage existing user lists or Facebook for distribution with limited capital investments, which has resulted in on-demand laundry, dry cleaning, dog walking, and massages. Excluding Uber, they are services of convenience. A nice-to-have. But you rarely need them urgently or use them frequently, so you are unlikely to pay a premium over existing solutions or for recurring cleanings.

To compete, on-demand service companies lower prices and/or discount heavily. Consumers become loyal to the price, not the brand or service. And with the proliferation of new services, prices are dropped further. The result? On-demand service companies that are commodity deal providers. The on-demand service companies that win will be the ones that compete on more than convenience.

Maybe. Maybe Not.

A valuation that factors in a projected loss of $150M and estimates revenue of $900M in 2015. Tech bubble? Maybe.

WSJ compares AirBnB to Marriott, specifically citing that Airbnb’s valuation is comparable to that of the hotel giant. Marriott is currently trading at an enterprise value of $25BN (Marriott shares x share price + net debt) after generating $13BN of revenue and earning $1.5BN of EBITDA in 2014.

Marriott’s revenue is 1,344% higher than Airbnb. Tech bubble? Maybe.

Investors in public company stocks bet on the future growth of the underlying company. Their investment purchases a portion of the company’s future earnings. As such, expected growth opportunity is a large contributor to price appreciation. Marriott operates over 714K hotel rooms that have a74% occupancy rate (193M total nightly bookings). Airbnb had 37M nightly reservations in 2014, less than 20% of Marriott.

However, for Marriott to grow 10%, they would need to increase prices (which could decrease occupancy), increase occupancy (by decreasing prices), or add more rooms (via acquisition or capital/time intensive build-out). Expensive.

Meanwhile, Airbnb grew 300% in 2014, driven by their organic brand awareness, two-sided marketplace supplying new customers, and cheap customer acquisition. If it grows at just under half of its current rate, it will surpass Marriott nightly bookings in 2 years with only a fraction of the overhead. Moreover, Airbnb is creating a new market. Not only is it shifting market share away from the incumbents, but it is also creating inventory in places where it previously didn’t exist (see: Bedford-Stuyvesant and Harlem), something VRBO/Homeaway missed out on by targeting extended vacations. By expanding the market of users, Airbnb owns a larger share of the growth opportunity in its industry.

Back to the financials: Marriott grew EBITDA by 15% in 2014. Extending this growth through 2020, Marriott’s will expect to earn $3.4BN of EBITDA. To benchmark “price” against Airbnb (and other hospitality / lodging companies), we can take their enterprise valuation of $25BN over their 2020 EBITDA of $3.4BN, which results in a 7.4x enterprise value / EBITDA. According to the WSJ, Airbnb is projecting $3.0BN of EBITDA in 2020. Their current valuation of $25BN represents an 8.0x enterprise value / 2020 EBITDA multiple, which is line with Marriott’s multiple.

If Airbnb and Marriott are priced the same, could we consider Airbnb’s valuation relatively cheap given the growth opportunity?

The Airbnb and shared economy investors certainly think so. And Marriott investors? Here is what they are holding on to:

(1) Marriott (and other hospitality brands) have incredible lobbying power that will continue to invest in the enforcement of regulation against Airbnb.

(2) Apartment buildings will enforce sub-leasing restrictions.

(3) Airbnb currently has no physical asset value; Marriott and others have significant real estate / asset value (much of which may be depreciated off the books for tax purposes but still carry significant value).

I’m hearing increasingly more dialogue about value-add investing (or maybe that’s just from reading every post in my daily Mattermark emails). But there doesn’t seem to be a consensus yet on what value-add is. So, here’s how I build-up value-add investing:

Investors: Invest capital in exchange for equity (or convertible debt) of a company.

The current market dynamic coupled with platforms like Angel List and Kickstarter is making capital more accessible, and therefore more of a commodity. Meanwhile, traditional active investors’ “services” such as relationships and financial guidance are now table stakes. You need them to participate. It’s the additional application of committed expertise that makes an investor value-add.

Why? Because it is a manufactured issue. Master of Business Administration programs are not meant to create entrepreneurs. The majority of MBA students do not enroll to found a company. They want to join investment banks, private equity firms, consultancies, and/or consumer product brands. In fact, over 89% of students at UPenn’s Wharton, Stanford GSB, and Indiana’s Kelley find placement in corporate America. Hence, the curriculum is designed to create super analysts and managers. And against that objective, the curriculum is effective.

Tullman says probably not. He believes business school programs will evolve in a reactive manner. He adds that business schools will play catch up through:

“…frantic, and utterly expected and lemming-like responses by adopting the best practices from the outside world and adding courses in stats, data science, and A/B testing.”

My co-founder at Dashfire, Nick, received an MBA from Indiana’s Kelley School of Business. He concentrated in Decision Sciences and focused on simulation, split testing (the 1990s version of A/B testing), neural networks, data mining, real options, and optimization.

Nick graduated in 2002.

These disciplines are offered to prepare students to make risk reducing decisions at their future employers. That’s why Google has an “MBA preferred” for its highest paying non-engineering positions.

Though assumed to chasing huge risks to start world-changing companies, the best entrepreneurs don’t seek risk. They diligently seek to mitigate it. Hence, the risk framework taught in business schools strengthens entrepreneurs.

Meanwhile, MBAs are adding to the framework. The professor roster is regularly supported by entrepreneurs serving as adjuncts. Founder and VCs alums participate in classes, office hours, and pitch competitions. Endeavors like iLab at Harvard Business School or Chicago Booth’s New Venture Challenge offer funding through venture challenges, provide co-working space, and access to startup workshops. In Chicago, Northwestern’s Kellogg and Chicago Booth’s logos shine brightly as inaugural tenants of 1871, the city’s premier startup co-working space.

What it takes to be a successful entrepreneur is not prescriptive. The path taken — whether through a snowy night in Paris or through Stanford — is meant to be directional. In the end, there is not one perfect path. Rather, a number of directions, most of which become celebrated in hindsight. All MBAs don’t make great entrepreneurs. Just as all doctors don’t discover new vaccines. But every year, business school proves to be the right path for a group of entrepreneurs. Just look at Chicago’s Braintree (founded by a Chicago Booth Alum), Grubhub (co-founded by a Chicago Booth Alum), and Trunk Club (founded by a Stanford GSB Alum).

The proliferation of the vertical marketplaces is only just beginning, specifically in the on-demand verticals. But as more entrants attack the same on-demand niches (see: home cleaning), these companies will inevitably sacrifice margin to win on price, thereby limiting the market opportunity. I believe that the ultimate differentiator for dollar opportunity is not in the vertical, but the magnitude of urgency within that vertical. Let’s explain through a base case using Uber:

Drivers are losing money (gas, mileage, car depreciation, opportunity cost) for every mile they drive with an unoccupied vehicle

As my partner at Dashfire, Kelsey, points out, “both sides need the other urgently” thereby creating a desperate demand for the offering. Desperate demand allows for increased (or surge) pricing and an instant multiplier on the revenue opportunity.

We supported the launch of an on-demand home cleaning company in 2012 called LoClean. We saw great acquisition economics, but learned quickly that price not convenience was the ultimate driver(1). This is evident in Handy and Homejoy; both have dropped prices over fifty percent the past few years. There are certainly times when my home is a mess, I need to have a shirt dry cleaned(2) for a meeting tomorrow, or I’m too lazy to drive to the grocery store. But what is the maximum multiple I would pay for the immediacy of having HomeJoy, Washio, or Instacart serve me? I’d likely pay 1.5x the $50 to get the home clean, but I’m better off doing it myself than paying 3x.

The pricing power Uber has achieved as compared with most “Uber For X” is the difference between convenience and desperation. Convenience has a limit. Desperation does not. The repercussion cost — when the outcome cost no longer outweighs the service price multiplier — is much lower for home cleaning than for urgent transportation, which is far more frequent. I would pay 2x if I need a home cleaned today because it’s convenient. But if I’m late for an international flight, I will accept a much higher surge multiplier because the consequence is far more expensive. The desperation / surge multiplier allows for exponential market size increase. What vertical is next?

(1) The other decision elements in marketplace economics are frequency (you need a cab more often than you need dry cleaning), quality and time. Take vacation planning on AirBnB as it relates to quality and time. AirBnB wins b/c it provides a high quality user experience, low cost optionality, and review-supported high-quality staying experience. There isn’t a desperation or urgency to make a decision, so you can read reviews, make inquiries, and price compare.

(2) Full disclosure, our sister company FarShore works with Pressbox. I believe that another dimension of vertical marketplaces is to actually augment the supply chain. Pressbox does so by building 24/7 lockers to collect laundry in apartment buildings.

Today, we are honored to announce the acquisition of Artifact Uprising, a Dashfire portfolio company, by VSCO. There is no singular path for startup success, just a number of right paths; most of which are celebrated as successful in hindsight. The founders of AU, Jenna, Katie, and Matty, paved their own path. In fact, had they shared their roadmap with the startup community, it would have likely received the standard “just what the world does not need, another photo book company” commentary. But AU didn’t follow the prescriptions of others. They were motivated to inspire their followers to be story tellers – to get off their devices and into their lives. And they did so by creating beautiful products that were built with purpose and passion. The products evangelized the creative community, and AU reciprocated by loving their customers with proactive support and engaging content. They infused sustainability in their products and invested back in their community, not for recognition, but but responsibility. The AU brand became both inspirational and aspirational and served as a barrier to imitators.

The Artifact team built a rocket that fueled its own impressive growth. But AU had the self-awareness to realize that joining VSCO’s team would allow them to accelerate the pursuit of their purpose and their mission. Jenna, Katie and the AU team will stay on board and, together with VSCO, will continue to pour every bit of passion and heart into Artifact Uprising – the only way they know how. Here is AU’s perspective.And VSCO’s.

I am grateful to have been on this journey with AU for the past 2 yearsThe effort has been exhilarating, demanding, and rewarding. I’m appreciative for the partnership we have had with Jenna and her team. Enabling AU is a true testament to the Dashfire model. And I’m perpetually thankful for Nick and my team – FarShore, Kelsey, and our investors at Dashfire – for providing Artifact the capacity they needed to blaze their own path.

I love accelerators. I have witnessed their impact first hand on Dashfire startups and as a mentor for TechStars, DreamIt, and Impact Engine companies. These highly selective programs enable early stage startups through mentorship, networking, and fundraising to leading angels and VCs. AirBnB, Dropbox, and Digital Ocean are just three of the many extraordinary accelerator graduates. These successes have led to an increased demand from later stage startups for these programs, but at the same terms accelerators were offering to less proven companies. It’s an economic no-brainer for accelerators, but has left earlier stage startups with less access to the proven accelerator framework.

In 2012, Illinois State students, Mike Shannon and Kasey Gandham, founded Packback Books, an on-demand e-textbook rental platform. Mike and Kasey knew that they didn’t have the prerequisites for an accelerator. So they created their own. And their throwback, pound-the-pavement style worked. In the time since, they have partnered with 7 publishers, created 13 Chicago-based jobs, partnered with 100 brand ambassadors, and raised money from Mark Cuban after starring on Shark Tank.

Here’s how they self accelerated:

Accelerators generate networking opportunities. Accelerators provide young companies and entrepreneurs with access to influencers in the space.Kasey and Mike researched relevant Chicago influencers on LinkedIn. They snuck into 1871 and waited for these influencers to leave their office before approaching them. While they faced awkward stares and rejections, many influencers appreciated their hustle and took the meeting.

Accelerators facilitate key hires and partners.Just an additional step to networking. Accelerators identify personnel and strategic needs, then introduce the individuals to meet said needs.Kasey and Mike built a robust advisory board that led to the introduction of their current CTO and law firm.

Accelerators “open doors” faster. The accelerator network includes corporate executives who can make introductions to corporate or strategic partners.Kasey and Mike opened their own doors. They leveraged their .edu emails to convince the President McGraw Hill to attend an event they hosted at Illinois State University. After pitching him on Packback and negotiating a pilot, they used this milestone to gain the audience of other publishers.

Accelerators offer office hours with verticalized mentors.Mentors provide companies with feedback on their respective trade: sales, marketing, design, development, etc.Recognizing that their key limitations were on customer insights and technology, they partnered with Leo J. Shapiro to facilitate focus groups and Dashfire for product development.

Accelerators facilitate fundraising through demo day.Angel and venture capital investors listen to pitches from each batch and are prepared to make investments.Kasey and Mike met with over 100 investors and parlayed some early wins into larger commitments. And then they created their own demo day. On Shark Tank.

Want to learn more about self-acceleration? Go stalk Kasey & Mike outside their office. It just might work.

Last Monday, I was asked to welcome the current batch of Startup Institute Chicago students. I enjoyed reflecting on how much has changed for startups in Chicago over the past 4 years. Here is a slightly edited version of what I said to the SI class

—

I was here last fall welcoming the inaugural Chicago class and feel lucky to have have spent so much time with your soon to be peers. It truly is gratifying to see so many people come from so far to to commit and contribute to the Chicago ecosystem by investing in themselves. So much has changed in the past four years and it is certainly refreshing to see. So thank you.

I’m here to tell you why you are so important to Chicago. So I’ll start by stating the obvious. Startups are made up of code, design and nowadays, facebook likes. And of course the people who develop, design and acquire the likes. And more times than not, it’s the founders who earn the credit for being entrepreneurial. But it isn’t said enough that early stage employees are also entrepreneurs. They are joining companies where there is no long term certainty or guarantee. Every day is a hustle and you are required to multi task and often work independently. And just like great founders, early stage employees do not chase risk, rather, they seek to mitigate it. And they do that by kicking ass at their jobs. You all by being here today are making that commitment. In 8 weeks, you will join a startup and accelerate your impact to them.

4 years ago, there was no 1871, Groupon was pre-IPO, and there was no Startup Institute. It was next to impossible to recruit startup talent. But Chicago has blossomed over the past few years on the backs of its founders. And you will continue that growth. You are the founders of your own careers. And by investing in yourself, you are enabling more startups to be successful. So like a founder, take this seriously. Be intentional. Come in early, stay late. Network, blog. Ask questions and demand excellence of your peers and teachers.

Last Wednesday, I spoke to the inaugural Startup Institute class in Chicago about how to “introduce” themselves to startups. This reminded me of an introduction I gave for Georgetown’s business school head, Dean David Thomas. I’ve copied the intro below and included a few takeaways on what I did right and could have done better.

Be thoughtful. Research your audience.

Be creative. Following the herd doesn’t leave an impression. Stand out.

Follow-up. I’m writing this post over a year after I met Dean Thomas. Aside from a follow-up tweet he sent my way, my relationship with Dean Thomas doesn’t exist because I didn’t take the time to follow-up. That’s my fault.

—

“Hi Everyone, my name is Rick Desai and I have the great privilege of introducing the Dean of our McDonough School of Business, Dr. David A. Thomas. Justine asked me to review Dr. Thomas’s profile. I interpreted that as memorize his accomplishments and present them tonight. That’s next to impossible. He’s done everything. Dr. Thomas spent over 20 years on the faculty of Harvard Business School. The H. Naylor Fitshugh Professor of Business Administration. Directed HBS’s Organizational Behavior unit. Dr. Thomas is widely published, having co-authored two books and over 60 case studies. He has been honored with a number prestigious awards and is widely regarded as a thought leader in organizational behavior and strategic human resource management. As now he is guiding the MSB into the future.

Now, with all that said, I did want to get to know the “real” Dr. Thomas before introducing him today. So I did a little internet recon. Google through the interviews and profiles reiterated that Dr Thomas is an extraordinary leader. LinkedIn provided his resume – and Facebook came up empty. And then I checked the last place I thought I would find our Dean: Twitter. Lo and behold, Dean Thomas tweets actively. And I want to share a few of his tweets which really resonated with me.

Dean Thomas is man of the people.

Still learning social media. A student yelled at me tonight, “Dean Thomas, you gotta tweet back to your students.” Will do.